I am a senior editor at Forbes, covering legal affairs, corporate finance, macroeconomics and the occasional sailing story. I was the Southwest Bureau manager for Forbes in Houston from 1999 to 2003, when I returned home to Connecticut for a Knight fellowship at Yale Law School. Before that I worked for Bloomberg Business News in Houston and the late, great Dallas Times Herald and Houston Post. While I am a Chartered Financial Analyst and have a year of law school under my belt, most of what I know about financial journalism, I learned in Texas.

General Mills Consumers Give Up Rights To What, Exactly?

Oh, to be a New York Times writer. The Newspaper of Record yesterday reported that consumers who “liked” General MillsGeneral Mills foods on Facebook could “give up their right to sue the company.” Today, the paper backpedaled a bit. Under a misleading headline suggesting that General Mills had amended its legal policies, the Times reports that only consumers who join the cereal maker’s online communities and download items of value, such as coupons, agree to the company’s policy requiring legal disputes to be settled in arbitration.

It doesn’t look to me like General Mills amended anything. It just told the Times that the paper’s social media-friendly lede, linking the arbitration policy to Facebook, was a stretch.

The bigger issue is what the Times writers work so strenuously to keep out of their stories. The fight here isn’t over individual lawsuits; it’s over class actions, those cases that reward lawyers with millions of dollars in cash fees and give their clients little to nothing. In editorials and articles like this, the Times carries water for the class-action bar, which also happens to supply a significant amount of money to the Democratic Party each year. The paper conflates the individual right to sue with the right of lawyers to assemble huge groups of consumers, typically without their knowledge or participation, into zombie armies that can compel companies into settling on lucrative terms.

What do General Mills customers really give up if they agree to an arbitration clause?

GoogleGoogle “cereal class action” and you’ll see. The attorneys at Blood Hurst & O’Reardon negotiated this Mini-Wheats settlement in 2013, under which consumers got whatever was left of $4 million after the attorneys subtracted expenses and up to 25% in fees. Class-action lawyers generally make it difficult to find out how many Mini-Wheats customers mailed in for their $5 checks, but in general only a tiny number do. Lawyers also resist any attempt to adjust their fees to reflect the effectiveness of their settlements; they get paid cash regardless of whether their clients got any value at all.

The General Mills arbitration policy is a so-called “clickwrap” agreement that consumers theoretically agree to when they click on the company’s website for “discounts, content, features, services, or other offerings.” It requires consumers settle all disputes in binding arbitration, instead of in front of a jury. Lawyers and many judges hate such agreements, both for cynical reasons — lower legal fees — and the sincere belief that consumers will always get the worst of a binding agreement with a powerful corporation.

But arbitration does offer some advantages over traditional litigation. Such as: No lawyer would ever take a small case against General Mills in the first place. The General Mills policy specifies a $200 filing fee, which the company waives in cases involving less than $5,000. And anybody who really wants to preserve his right of jury trial can opt out of the policy entirely by notifying General Mills in writing.

Yesterday’s Times story raised the frightening prospect that consumers could be forced into arbitration even if an employee deliberately put ground glass into a box of cereal, as an official of the American Association for Justice, a trial lawyers’ group, put it.

That’s technically possible, although I am skeptical any judge would allow it and even if she did, it might prove a good case to settle in arbitration without lawyers taking 30% of the proceeds.

I spoke with Alan Kaplinsky of Ballard Spahr, a pioneer of arbitration clauses, and he said it’s possible to sweep even personal injury claims into a clickwrap agreement.

“Clickwrap does generally bind someone to an agreement if it’s adequately disclosed,” he said. “Will it cover personal injury? No reason it can’t, as long as it is written broadly enough.”

That’s not what’s got the folks at the Association for Justice, Public Citizen and the Times editorial board so worked up, however. It’s the class-action waiver in the General Mills agreement, which prevents lawyers from assembling classes like the one above. This is a very old battle, going back to 1925, when Congress passed the Federal Arbitration Act requiring judges to honor most arbitration agreements in contracts. The U.S. Supreme Court has upheld it in several landmark decisions, most recently rejecting an attempt to strip out class-action waivers in American Express vs. Italian Colors.

That’s what the General Mills story is really about, not an individual’s right to sue over a defective box of Cheerios.

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“These new provisions contain an agreement to resolve any and all disputes you may have with General Mills or any of its affiliated companies or brands contain through informal negotiations and, if these negotiations fail, through binding arbitration. This includes disputes related to the purchase or use of any General Mills product or service. All arbitrations will be conducted on an individual basis; you may not arbitrate as a member of a class. Claims may not be brought in court (with the limited exception of small claims court in certain circumstances), nor may you participate in any class action litigation. (See Section 3, “Binding Arbitration.”)

“Your use of any of our sites or services, or participation in any other General Mills offering, means that you are agreeing to these Legal Terms. You may terminate this agreement at time by notifying us by email of your intent to do so, but only if you also cease to participate in any of our offerings.”

Arbitration is still suing, just not in front of a jury. With dramatically lower costs. And the lawyers who complain about individuals giving up their “right to sue” are being disingenuous. They wouldn’t take those cases anyway. Only the class-action lawyers have a real economic stake in this.

If they wouldn’t take them, why is General Mills making sure they CAN’T? And what RIGHT do they have to FORBID people from using an actual court? That’s not THEIR decision.

It’s completely ridiculous. Visiting a website isn’t an AGREEING to do a damned thing. Obviously. People are *assumed* to agree to something because they ate Cheerios? Because General Mills SAID so? That’s INSANE.

Maybe I should close my comments with “Your reading this comment means that you are agreeing that I’m entitled to half your salary. You may terminate this agreement at time by notifying me by email of your intent to do so, but only if you also cease to read these comments.”

I think the big problem with class action waivers are that they allow large companies to commit civil wrongs which are of small economic consequence to a single person, but on a large scale. No one wants to sue over $1, either through arbitration or in court. Large companies know this. Normally the only way to stop companies from operating like this is to file a class action lawsuit. It may be true that class action attorneys are well paid but I believe it benefits society in the long run. My comment is not directed at any particular company but simply class action waiver clauses which are usually boiler plate language (small print that no one reads).

So allow class action waivers and let corporations get a windfall of illegal profits at the consumer’s expense? Consumers that are part of a class action do pay for attorney’s fees but the consumers also get compensation that would not be possible without the class action because it would be economically impracticable. Class action also serve as a deterrent for corporations to commit large scale fraud. I don’t have a problem with someone agreeing to mandatory arbitration/class action waivers as long as they know what they are actually agreeing to (and it is fair to say that most do not). Other waivers of rights such as waiver of warranty of title (basically that what someone is selling is not stolen) are not valid if placed as boilerplate language like mandatory arbitration clauses and class action waivers. Mandatory arbitration/class action waivers should be treated just as waivers of warranty of title.

I agree — with one more condition: Consumers shouldn’t be included in class actions against their will, either. An opt-in system would make sure they are fully aware and engaged in the important work their lawyers are doing on their behalf.

This policy is manipulative and does not recognize the rights of their customers. And while General Mills states others have the same language in their social media policies law expects could not verify that fact. This policy is dangerous if it’s used to set precedent. Here’s a complete list of General Mills products and at the bottom a link to boycott via phone app. http://www.killingmycareer.com/uncategorized/general-mills-showing-people-how-not-to-like-their-company/

Saying that arbitration is less expensive than litigation in court is simply and provably false. Filing fees for arbitration are generally higher than court fees (often many multiples of the court fee) and litigants have to pay hourly rates for arbitrator’s services. In some very limited circumstances, costs are reduced because the arbitration rules eliminate almost all pretrial discovery. But that is far from the rule and the correlated disadvantage of that proposition should be obvious.

For a substantial piece of litigation, you are going to see substantial attorney fees regardless of the forum.

The only reduced “cost” in arbitration is that the awards are uniformly lower than court. It doesn’t matter if you are a consumer, a small business, or an independent professional. If you contract with another entity for goods or services, including an arbitration clause in the agreement may be the surest way to ensure that you will not get your due if litigation ends up being necessary to enforce your rights.

As to the argument that arbitration reduces “costs” by closing the courthouse doors to consumer disputes, that is too cynical for me to accept as a legitimate or civically responsible argument.

So say the class-action lawyers and Public Citizen. But this hardly gets past the laugh test. First, what empirical research are you citing to call the claims of lower expense “provably false”? And can you seriously suggest that the $1 million in fees the lawyers reaped in the cereal case I cited benefited consumers in any way? It was a nuisance lawsuit settled for a nuisance fee, and consumers got nothing but the bill. Your “consumer disputes” are nearly always the creation of lawyers in search of a fee.

First, I don’t need empirical research to validate what I know from years of litigation experience. Query whether you are able to cite a single study on the subject not driven by an explicit “tort reform” agenda. Second, you ignore a significant point I made, arbitration hurts businesses that need to sue. Third, your sample size of one in the Mini-Wheats settlement is actually an example of a good settlement. Consumers received cash payments from the Mini-Wheats settlement. Are you seriously suggesting that paying consumers back after a consumer products company acts improperly is not a benefit?